SEC examinations to focus on new rules, ESG, cryptocurrency

The Securities and Exchange Commission’s 2023 examination priorities will include compliance with newly adopted rules, ESG investing and crypto assets, according to the SEC’s division of examinations.

The division will focus on examining compliance with the new marketing rule, derivatives rule and fair valuation rule, according to a report the division released Tuesday.

The compliance date for the marketing rule was Nov. 4, meaning the division will now “assess whether RIAs have adopted and implemented written policies and procedures that are reasonably designed to prevent violations” of the rule, the report said.

The division will also examine whether registered investment advisers comply with substantive requirements of the rule, the report said, including the requirement that RIAs “have a reasonable basis for believing they will be able to substantiate material statements of fact and requirements for performance advertising, testimonials, endorsements and third-party ratings.”

On environmental, social and governance investing, the division will focus on ESG-related advisory services and fund offerings, as well as assess the proper labeling of ESG products and whether the recommendations of such products are in investors’ best interest.

When it comes to crypto and emerging technologies, the division said it will examine any broker-dealers and RIAs that are using new technologies, such as broker-dealer mobile apps, or RIAs providing automated digital investment advice. The division also expressed particular interest in crypto, pointing to recent events.

“Given the disruptions caused by recent financial distress among crypto asset market participants, the division will continue to monitor and, when appropriate, conduct examinations of potentially impacted or affected registrants,” the report said.

ESG and crypto assets were also examination priorities for 2022.

In addition, the division said it would continue its focus on RIAs to private funds. Examinations will review an RIA’s fiduciary duty and assess risks, including conflicts of interest, compliance programs, fees and expenses, custody, the agency’s new marketing rule, and using alternative data.

“In a time of growing markets, evolving technologies, and new forms of risk, our division of examinations continues to protect investors,” SEC Chairman Gary Gensler said in a news release Tuesday. “In executing against the 2023 priorities, the division will help ensure compliance with the federal securities laws and rules.”

Other priorities include ensuring compliance with Regulation Best Interest, fiduciary duty and Form CRS; as well as reviewing practices to protect investor information and prevent interruption to critical services.